San Diego’s Lusk Business Park to Trade Hands for $315M

PS Business Parks Partners has entered into an agreement with an affiliate of Longfellow Real Estate to sell Lusk Business Park in San Diego. The property will trade hands for $315.4 million.

PS Business Parks will have $311 million in net proceeds from the transaction after settling transaction costs. Earlier this week, Longfellow Real Estate’s due diligence period ended and the purchase price deposit became non-refundable.

The net sales price represents a 1.6% cap rate based on the anticipated $5.1 million in net operating income for 2021. PS Business Parks Partners plans to use $50.5 million from the transaction in a 1031 exchange to acquire Port America Industrial Park in Dallas, Texas. It will look for a 1031 exchange for the remainder of the proceeds, but if it cannot find one, the company will pay a one-time special dividend sourced by a portion of the disposition proceeds, $166.0 million and $183.5 million, or $4.75 to $5.25 per common share and unit.

The remaining net proceeds will also allow the company to redeem its Series W preferred shares on November 3, 2021. The shares yield a preferred coupon rate of 5.2%.

Lusk Business Park is a 20.6-acre campus with 1.8 million square feet of life science development potential. Mac Chandler, the PS Business Parks Partners’ president and CEO, says that the life science development potential market the property “extremely valuable” due to the significant demand for life science space in San Diego. Since March 2020, demand for lab space increased 280%, according to research from JLL. The demand is driving both leasing and investment activity in the market.

As a result, assets that can serve life science demand are trading with high price tags. City Office REIT, for example, entered into definitive agreements to sell all of its life science holdings in the Sorrento Mesa submarket of San Diego for $576 million. The properties are trading unencumbered by debt to an unnamed buyer. And, in July, KBS assisted Prime US REIT in the purchase of Sorrento Towers, an office, tech and life science hub in San Diego for $146 million. Shorenstein Properties sold the office building to Prime, and KBS sourced the deal and will serve as the US based asset manager on behalf of Prime.